following between 0 and 1.) Expected Return Stock A B C 8.44% 10.12 12.22 for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. Standard Deviation Beta 16% 0.7 16 16 1.1 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) The data has been collected the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. What is the market risk premium (rM - Tar)? Round your answer to two decimal places. 96 b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. % d. Would you expect the standard deviation of Fund P to be less than 16%, equal to 16%, or greater than 16% ?
following between 0 and 1.) Expected Return Stock A B C 8.44% 10.12 12.22 for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. Standard Deviation Beta 16% 0.7 16 16 1.1 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) The data has been collected the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. What is the market risk premium (rM - Tar)? Round your answer to two decimal places. 96 b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. % d. Would you expect the standard deviation of Fund P to be less than 16%, equal to 16%, or greater than 16% ?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is
between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
8.44 %
16 %
0.7
B
C
1.1
1.6
10.12
12.22
16
16
Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) The data has been collected in
the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.
Open spreadsheet
a. What is the market risk premium (FM - TRF)? Round your answer to two decimal places.
%
b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places.
c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places.
%
d. Would you expect the standard deviation of Fund P to be less than 16%, equal to 16%, or greater than 16%?
I. less than 16%
II, greater than 16%
III. equal to 16%
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